Enterprise Investment Fund

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A government-backed tax incentive scheme to increase private investment in early-stage, high-risk businesses.
What are the main aims and objectives?

The Enterprise Investment Fund aims to close the funding gap facing innovative small businesses in the UK by providing substantial tax relief to individual investors, encouraging them to supply risk capital to startups that may otherwise find it difficult to secure financing. Policymakers designed the scheme to foster economic growth, create high-quality jobs, and develop a strong entrepreneurial ecosystem, with a particular focus on supporting knowledge-intensive, tech-driven sectors.

How does the program work?

The Enterprise Investment Fund operates primarily through the UK’s Enterprise Investment Scheme (EIS), a national policy introduced in 1994. This scheme encourages individuals to invest directly in eligible early-stage companies by offering significant tax incentives, including income tax relief, capital gains tax exemption, and loss relief. Investors may claim 30% income tax relief (up to £1million per annum, rising to £2million for knowledge-intensive businesses) on their investment, provided that the new shares are held for at least three years. Any gains realized after this period are exempt from capital gains tax, and any losses can be offset against other taxable income.

Eligible companies must have fewer than 250 employees (500 for knowledge-intensive businesses), assets not exceeding £15million pre-investment, and must be unlisted for at least three years. Funds raised through EIS must be used for genuine growth activities, such as research, business expansion, or new market entry, rather than for refinancing or non-growth activities.

The British Business Bank supports the development and administration of funds under the EIS umbrella and related programs like Enterprise Capital Funds (ECF). Professional fund managers screen and select investments, maintaining oversight and adhering to government guidelines. Companies seeking eligibility must apply to HMRC for advance assurance; the eligibility process focuses on business size, purpose, sector, and intended use of funds.

Over time, the scheme expanded to allow higher investment limits for knowledge-intensive companies and introduced mechanisms to streamline eligibility and compliance. The government regularly publishes guidance and statistics, while the British Business Bank and independent researchers oversee evaluation and reporting. Investors cannot be “connected” to the company (no major shareholding or employment links) to prevent abuse, and qualifying rules are enforced to ensure that tax benefits support genuine entrepreneurial risk.

What is the overall cost?

In the 2022/2023 UK tax year, the Enterprise Investment Scheme enabled companies to raise £1.957billion (approximately $2.43billion USD) in qualifying private investment. The EIS is state-backed, meaning tax reliefs are funded through government tax expenditures. Since launch, cumulative investment raised through EIS exceeds £25billion (over $31billion USD).

How was it implemented?

The UK government launched the Enterprise Investment Scheme in 1994, overseen by HM Treasury and administered by HMRC and the British Business Bank. The scheme responded to persistent gaps in early-stage funding, with policymakers identifying a need to foster private sector participation in supporting risk-prone but high-potential companies. Initial rules restricted eligibility to unlisted companies with limited assets and staff, targeting sectors likely to generate innovation and employment.

Fund managers apply for authorization as EIS funds, demonstrating capacity to select, monitor, and report on investments. The British Business Bank selects experienced managers, focusing on track record, governance, and sector knowledge. HMRC sets the compliance framework and reviews advance assurance applications.

Staff involved in implementation received training on due diligence, risk assessment, and regulatory requirements. Guidance developed jointly by HMRC and the British Business Bank helps fund managers and companies navigate application processes. Advisors and leaders from the UK’s venture capital sector, such as Keith Morgan (former CEO, British Business Bank), and policymakers at HM Treasury, have played key roles.

The scheme evolved with legislative updates and periodic reforms, such as higher investment ceilings for knowledge-intensive firms, changes to advance assurance processes, and more robust performance evaluation. Milestones include the introduction of the Enterprise Capital Funds in the mid-2000s (which built on the EIS structure) and annual reporting from HMRC on usage and outcomes.

Key dates:

  • 1994: Fund launched
  • 2005: Enterprise Capital Funds introduced
  • 2017: Higher limits for knowledge-intensive companies
  • Annual updates: Regulatory reviews and reporting
What impact has been measured?

The EIS has had a substantial impact on UK entrepreneurship. Between 2011 and 2019, companies supported by EIS created nearly 8,000 new jobs, saw a 76% rise in turnover, and generated £2.2billion in additional sales by March 2019. These jobs were typically high-skilled and well-paid, with average salaries at £56,000, above UK averages. The EIS has become a major driver for UK venture capital, raising more than £25billion for 52,000+ companies since its inception. Leverage effects are considerable: every £1 of public support through EIS attracted an additional £2.80 from private investors in related funds, according to British Business Bank evaluations.

CURATED BY

Tom Hancock

Research Associate
Global Entrepreneurship Network
United Kingdom